One way to pay for college expenses is to use your IRA. Distributions from an IRA that are used to pay for qualified higher education expenses escape the ten percent early distribution penalty.

In general, qualified education expenses include the cost of tuition, as well as room and board if the student is enrolled at least half-time. Qualified higher education expenses also include fees and the cost of text books, supplies, and equipment required for enrollment or attendance.

Unfortunately, amounts paid for a computer, house wares, appliances, furniture, and bedding in connection with enrollment at a university do not qualify for the education expense exception to the IRA early withdrawal penalty.

Also, the IRA withdrawal must occur in the same tax year the expenses are incurred. For this reason, you cannot escape the penalty by taking a withdrawal from your IRA to pay off a student loan.

The exception to the early distribution penalty only applies to an IRA. You cannot take a distribution from your 401(k) plan, for example, and avoid the penalty.